Sunday, September 30, 2018

Should You Follow the Stock Market Every Day?

No, I don’t follow the stock market every day. Of course, I do read about the market, albeit with a bit of amusement, in the newspaper headlines. Financial papers often scream “Market Crash Wipes Out $ 50 billion Investor Wealth”.

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Why You Need Not Follow the Stock Market Every Day?

My guru Warren Buffett says that when you invest in stocks think that the market is not going to open for the next 50 years. As a value investor, I am trained to think that when I buy a stock it is like investing in a proprietary business. Proprietary businesses are not listed on a stock exchange. Does the proprietor have a way of knowing the value of his business every day? Does she worry about the market value of her business every moment? It is the same when investing in the shares of a company.

The day-to-day or moment-to-moment fluctuations in the price of a stock do not bother a real long-term investor. The reason for this is that a real investor does not invest in stocks merely for the gains arising out of the price fluctuations.

She is into stocks for the copious dividends good companies pay over lifetimes. She is keen about dividends because 'dividends are the investor's wages'. A company that pays dividends consistently at say 10 per cent every year pays back the investment more than three times over a period of three decades.

Of course, she is also interested in the long-term price appreciation of the stock. But she looks for it not from the day-to-day price fluctuations but on the back of the real growth of the company.

Then, Who Follow the Market Every Day?

Only day-traders follow the market every day. In fact, they follow it every moment. Why? Because they intend to make gains out of the price fluctuations.

When they buy stocks, day traders do not think they invest in a business. Speculators consider the share in a company is not ownership of a piece of the business. For the speculators, the share is a separate asset by itself. For them, it is like the stock-in-trade which is intended to be held for as short a period of time as possible and rotated as many times in the trading activity as possible. Every trade produces a small gain or loss.
This is not investing. My guru Warren Buffet says, "Just Looking at the Price is Not Investing". Day trading is pure gambling. It is highly stressful. We should learn the art of ‘Stress-Free Investing’.

I conclude by saying that I do not follow the stock market every day. I don't think shares of a company are stock-in-trade meant to be transacted. On the contrary, I a long-term investor consider a stock like a fixed asset meant to employed in the business to produce goods (dividends) also appreciate in value over a long time.

2 comments:

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